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    Introduction

    This page summarises leasehold reform matters for consumers, RICS professionals and their clients.

    The summary is based on the Leasehold and Freehold Reform Act (LFRA) which received royal ascent 24 May 2024. The act requires secondary legislation for the majority of measures to come into effect, legislation that has not yet passed at the time this hub was updated.

    Following the general election, the Labour government have committed to implementing the provisions of the Leasehold and Freehold Reform Act 2024 as well as additional reforms which will be covered in more detail further on.

    The Act proposes several key changes including (in summary, this list is not exhaustive):

    • Increasing the standard lease extension term for houses and flats to 990 years.
    • Lifting of the requirement for leaseholders to have owned the property for at least two years before qualifying for a lease extension or purchase of a freehold.
    • Removing ‘marriage value’ from the premium calculation for lease extensions.
    • Making it easier and cheaper for leaseholders to extend a lease or buy the freehold.
    • Making it easier for leaseholders to take over the management of their building – increasing to 50% the amount of commercial space that would prevent leaseholders from accessing the Right to Manage or the right to collective enfranchisement.
    • Removing paying for freeholder costs from leaseholders who want to exercise their right to enfranchise. Each party will now pay their own costs.
    • Scraping the presumption for leaseholders to pay landlords’ legal costs when challenging poor practice.
    • Setting a maximum time and fee for the provision of home buying and selling information.
    • Replacing buildings insurance commissions for managing agents, landlords and freeholders with administration fees.
    • Ensuring freeholders or managing agents use a standardised format for service charges.
    • Requiring freeholders who manage their property to belong to a redress scheme.
    • Banning the sale of new leasehold houses other than in exceptional circumstances.
    • Granting homeowners on private and mixed tenure estates rights of redress.

    The Act also amended elements of the Building Safety Act 2022 affecting the application of cost recovery and remediation orders, and remediation contribution orders for defects. These measures have now been introduced and more information on building safety can be found in Cladding External Wall System FAQs.

    Valuation considerations

    Coverage of leasehold reform valuations can be found here. RICS also provides guidance on residential leasehold valuation for secured lending here.

    The RICS UK valuation leaders forum made a statement on the valuation of residential ground rent investments in December 2023 here. 

    Residential service charges

    Following the passing of the Leasehold and Freehold Reform Act 2024 there have been a number of questions raised about the impact on service charges and the role of the RICS Service Charge, Residential Management Code.

    The Code, currently in its third edition, is under review and RICS are in the process of engaging with the Ministry for Housing, Communities and Local Government (MHCLG) over their detailed feedback. However, the introduction of the Act will see a number of changes that will have an impact on service charges, including -

    • A ban on insurance commissions which will be replaced by an administrative charge.
    • The introduction of a standardised format for service charges.
    • Annual service charge reports. Where variable service charges are collected and there are four or more properties in a block, the annual reports will need to be accompanied by a service charge account statement.
    • A right to request information on service charges from a landlord who will be required to comply.
    • The recovery of legal and other professional cost through the service charge where they are incurred by a resident management company (RMC) or right to manage company (RTM) in connection with obtaining remediation contributions under the Building Safety Act 2022.

    All measures barring the recovery of legal and professional costs through the service charge for RMCs and RTMs in connection to remediation contributions will require secondary legislation.

    King’s Speech, July 2024

    Through the King’s Speech government has set out its intention to further reform the leasehold system, enacting remaining Law Commission recommendations relating to leasehold enfranchisement and the Right to Manage.

    The government has suggested it will take further steps to bring the leasehold system to an end, by reinvigorating commonhold through a new comprehensive legal framework, and consulting on restricting the sale of new leasehold flats so commonhold becomes the default tenure.

    The government has also said it will tackle unregulated and unaffordable ground rents and address maintenance costs on private estates.

    Frequently asked questions (FAQs)

    RICS has engaged with numerous stakeholders on leasehold reform. We set out responses to some of the most frequently asked questions here, which will be updated periodically. These were correct as of 30 July 2024

    At the moment we don’t have a timetable for further legislation. Government have stated that they will ‘act quickly’ to implement the changes of the Leasehold and Freehold Reform Act. Summer recess runs from the 30th July 2024 until the 2nd September 2024 so it is likely that we will have more information in the Autumn.

    The simple answer is no – apart from the amendments to the Building Safety Act.

    The previous government’s impact assessment worked off the assumption of the reforms starting to become effective between 2025 and 2026.

    However, the reforms will likely require substantial secondary legislation and guidance ahead of implementation. Some measures will also require such as those on commonhold may also require consultation.

    At the moment it is not possible to say. The code currently has Secretary of State approval and it will depend on the priorities of the government.

    The inclusion of a material valuation uncertainty (MVU) declaration in a valuation is a matter of professional judgement for the valuer, based on the individual circumstances. MVU has a specific criteria set out in VPGA 10 of Global Red Book and is different from general market uncertainty, which always exists to some degree. Valuers should not be including blanket MVU declarations in valuations without undertaking proper analysis of the circumstances and coming to an informed conclusion in each case. Even where there is not material uncertainty, it is proper for the valuer to provide appropriate commentary about market conditions and relevant legal factors.

    The RICS UK valuation leaders forum has put out commentary on MVU specifically in respect of residential ground rent investments, which is a unique sub-market.

    Valuation inputs are for the professional judgement of the valuer, appropriate to the circumstances.

    The Leasehold Reform Act includes a standard valuation method, with deferment rates due to be set through pending secondary legislation and therefore a degree of uncertainty remains.  

    Lease extensions and enfranchisement often also involve an element of negotiation and reference to case law decisions has been an important factor in valuation calculations in the past.